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On Oil Prices, OPEC Differs with IEA and EIA

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Yesterday, WTI (West Texas Intermediate) crude oil prices rose 0.8% despite bearish inventory data. The deeper OPEC+ production cut could be behind oil’s rise. On Wednesday, OPEC released its Monthly Oil Market Report.

In November, OPEC pumped around 29.55 MMbpd (million barrels per day) of crude oil. At this rate and based on OPEC’s report, the oil market could fall into a deficit of 30,000 barrels per day next year. Remember, OPEC should further reduce its oil output due to the OPEC+ agreement.

Today’s IEA (International Energy Agency) Oil Market report highlighted that supply would exceed demand by 0.7 MMbpd in Q1 2020 even after the deeper OPEC+ cuts.

The OPEC report noted that after the new output cut is implemented, the global oil supply surplus should be 80,000 barrels per day in Q1 2020. OPEC is led by Saudi Arabia, which is currently in the news due to Aramco’s public listing.

Moreover, the IEA highlighted that non-OPEC supply growth could fall from 2.3 MMbpd to 2.1 MMbpd next year. The report expected “weaker growth outlook” for oil output for the US, Brazil, and Ghana.

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EIA STEO data

On Tuesday, the EIA STEO (Short-Term Energy Outlook) report forecast lower oil prices for 2020 than this year. In 2019 so far, spot Brent and WTI crude oil prices have averaged $64.10 and $56.75 per barrel, respectively. This was contrary to Goldman Sachs (GS) analysts’ views of higher oil prices in 2020. To learn more, please read Oil Price Outlook: Goldman Sachs Sees a New High.

The report outlined that higher inventories in the first half of 2020 could drag oil prices. The forecast is similar to the IEA’s data.

The spread between Brent and WTI crude oil spot prices could average $5.50 next year, based on the EIA (US Energy Information Administration). So far this year, this spread has averaged around $7.33. Even after a deeper cut implemented by OPEC+, the EIA expects a year-over-year contraction in the spread. The EIA also expects an OPEC+ cut throughout 2020.

The US oil production growth rate has decelerated this year. With upstream companies lowering capital expenditure for 2020, a further slowdown in oil production growth rate is expected. It also impacts the Brent-WTI spread.

EIA inventory data and oil prices

Yesterday, the EIA announced an increase of 0.82 MMbbls (million barrels) in crude oil inventories for the week. The rise in inventories surprised the market’s participants. The Reuters poll estimated a fall of 3.1 MMbbls in crude oil inventories.

Gasoline inventories also gained 5.4 MMbbls, almost twice that of Reuters’ expected rise. Gasoline inventories rose for the fifth consecutive week, a bearish development for crude oil prices.

US crude oil production declined by 0.1 MMbpd from its highest level, which might have been influenced by the lower rig count. Please read Oil Rig Count Might Have Bottomed Out for a look at the relationship between oil production and the rig count.

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